Post-Election Rise in Sterling ahead of U.S. Jobs Report

May 8, 2015

Britain’s election did not result in a hung parliament as had been feared. The Conservatives were reelected with a majority of 323 seats, gaining 22 on balance. The Scotch National Party carved support away from Labour, whose seat tota fell by 23 to 229. The Liberal Democrats lost 85% of its seats to a mere 8. LDP head Clegg has resigned, and so likely will Labour leader Ed Miliband. The Tories want Britain to leave the EU.

Market reaction to Prime Minister Cameron’s win has been positive. Sterling advanced 1.1% against the dollar. The British Ftse has risen 2.0%, and the 10-year British gilt yields slipped by 3 basis points.

In other market action,

The dollar shows overnight gains of 0.4% relative to the loonie, 0.3% against the yen and Swiss franc and 0.1% vis-a-vis the kiwi. The yuan is unchanged, and the dollar has eased 0.2% against the loonie and 0.1% versus the Aussie dollar.

Share prices in Asia rose 2.0% in China, 1.9% in India, 0.6% in Indonesia and Singapore and 0.5% in Japan.

Share prices in Europe have advanced by 1.4% in Switzerland, 1.0% in Italy, 0.9% in France, 0.8% in Spain, 0.6% in Germany and 0.3% in Greece.

The ten-year German bund and Japanese JGB yields are five and two basis points lower.

West Texas Intermediate oil has firmed 0.4% to $59.15 per barrel.

Comex gold at $1,184.60 per ounce is 0.2% higher.

China’s trade surplus rebounded from only $3.08 billion in March to $34.13 billion in April. Such had averaged $56.6 billion per month in the three months to February. Imports in April were 16.2% lower than a year earlier. Exports contracted 6.4%, also underperforming expectations.

The British goods and services trade deficit of GBP 2.817 billion in March was smaller than February’s imbalance but greater than forecast. The merchandise trade shortfall again exceeded GBP 10.0 billion even though goods imports slipped 0.4% on month.

House price inflation in the U.K. accelerated to 8.5% in April from 8.1% in March according to the Halifax index, which leaped 1.6% versus the March level.

Germany’s current account surplus of EUR 27.9 billion in March exceeded February’s EUR 16.6 billion and the March 2014 surplus of EUR 22.0 billion. The surplus in the first quarter of EUR 60.4 billion was 22% wider than a year earlier. The seasonally adjusted trade surplus was EUR 19.3 billion in March and averaged EUR 19.6 billion per month in the first quarter, down from EUR 20.1 billion per month in 4Q14 but above the full-2014 average of EUR 18.1 billion.

German industrial production fell 0.5% in March but rose 0.5% in the first quarter. There was only a 0.1% rise between March 2014 and March 2015.

A number of other economies reported industrial production data. Italian output climbed 0.4% in March and 0.3% in 1Q. Finnish output fell 0.7% in March. Danish production posted on-year growth of 4.7%. Spanish output rose 1.0% on month and 2.9% from March 2014. In Norway, production climbed 2.7% in March but fell by 1.1% in the first quarter. Norwegian production also declined 2.0% on year in March. Turkish industrial output increased 1.1% in March and was 4.7% greater than a year earlier.

Minutes of the Bank of Japan’s April 7-8 Board meeting revealed optimism about future growth, doubts that 2% will be attained by next April, and dismay that colleague Kiuchi wanted to cut the pace of quantitative stimulus by 44% before the inflation target has been reached.

The Reserve Bank of Australia’s quarterly monetary policy statement revised projected growth downward by a quarter of a percentage point and signaled that a further interest rate cut is possible.

Swiss unemployment edged up 0.1 percentage point on a seasonally adjusted basis to 3.3% in April. Swiss consumer prices dropped 0.2% last month and recorded a larger-than-expected on-year decline of 1.1%.

Greek consumer prices sank 2.1% in the year to April, while Hungary’s CPI fell 0.3% on year.

U.S. labor statistics are due momentarily. Canada also releases its monthly labor force survey, as well as housing starts.

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